CHICAGO – When Michael O'Neil tried to pay the company that inspected the condo he bought last summer, he had no idea there was a company on the East Coast with a nearly identical name and an email address that differed by just four letters — until he sent $360 to the wrong business.
O'Neil, 37, sent the mobile payment using Zelle and has spent the last year trying to get the money back.
"It was my mistake, but one that I thought was immediately protected," he said. "Four letters shouldn't cost you ($360)."
Consumers want to be able to send and receive money as instantly as they can an email, whether they're splitting the bill at a restaurant or sending allowance to their kids. Tech companies and banks met that desire with products such as Venmo and Zelle. But lost in the excitement over the new technology was the understanding that instant payments don't have the same protection as credit card transactions.
If a user sends money to the wrong person, it's the sender's responsibility — not the company's.
While the customer may expect banks to retrieve their money, Zelle payments are treated the same as cash. There's only so much financial institutions can do to get the money back. In its user agreement, Zelle recommends that users not send money to people they don't know.
Venmo says it does not take responsibility for actions of recipients and doesn't guarantee the identities of users.
Still, the mobile payment operators are adding some warnings after learning that customers are more prone to mistakes than they had anticipated.
Last year, Venmo gave users the ability to add profile pictures to their accounts, introduced flags that pop up if the sender doesn't know the recipient, and added other measures to try to slow down users before they hit send. Early Warning Services, the bank-owned consortium behind Zelle, expects its partner banks to introduce pop-ups or alerts that ask users to confirm they're sending money to the right person.
Although users often send each other $5 or $10 for pizza or beer, the transactions add up. Zelle processed $32 billion in payments between July and September, up 67 percent from the comparable period last year, according to Early Warning, which is based in Arizona. More than 75 million email address and phone numbers are enrolled in Zelle, which has its own app and can be offered through banks' apps or systems. Zelle also processes corporate disbursements, such as insurance payouts, which are included in its numbers.
Venmo processed about $17 billion in payments during the same period this year, up 78 percent from last year. The company, which PayPal acquired in 2013 when it bought Chicago-based Braintree for $800 million, does not release user numbers.
Some users have already learned their lesson about misdirected payments.
When she was fresh out of college, Melissa Rohman was at a happy hour with new work acquaintances. Someone with "a very generic name" picked up the tab, she said. Rohman found a Venmo account with that name, typed in some emoji and sent off about $10.
"I keep tabs on my bank account pretty regularly, and I was noticing that it hadn't gone through," Rohman said.
She sent the money to the wrong person. The person on the receiving end of Rohman's $10 never accepted it, and the money was later refunded. But the temporary loss of that $10 was enough to slow down the Elmhurst resident when she sends money. Now, Rohman makes sure she's transferring money to the right person via Venmo. She checks the other user's profile picture, puts the person's number in her phone, and asks for direct confirmation that the profile she chose is the right one.
"If I know that it's not for certain them, I just wait and ask them," she said. "I don't want to be giving out money to people I don't know."
Amy Baxter, 27, also has resorted to her own analog security measures after sending $5 to the wrong person to cover her share of a beer-pong game with co-workers.
"I hold up my phone and I'm like, 'Is this you?' " she said.
When Early Warning launched Zelle last year, it thought consumers would use the product to send money to friends and family — people already in their contact lists, said Lou Anne Alexander, the company's group president of payment solutions.
"We thought it would be mom, sister," she said. "I don't think we realized how many folks would actually type in a cellphone number, for instance, as opposed to pulling it from someone (they) already know."
Users assume that banks can get their money back if it's sent to the wrong person, just as unauthorized credit card charges are often refunded. But that sort of protection is paid for through annual fees or other charges and Zelle is free, Alexander said.
She declined to provide data on the number of misfires Zelle users have experienced or the amount of money they've sent to the wrong people.
"It wasn't a lot of them, but when they happen, they're painful, and consumers like to talk about it," Alexander said. "They get really mad if their money goes somewhere and they don't see it."
For Zelle users, that anger is amplified because it's a bank-backed entity handling the money, said Sarit Markovich, a clinical associate professor in the strategy department at Northwestern University's Kellogg School of Management. Venmo users, on the other hand, might not expect the PayPal-owned company to get their money back, Markovich said.
"Consumers just expect from banks more than they would expect from a (smaller) company, specifically when you're thinking about protecting your money," she said.
And it doesn't matter to consumers that Zelle is free, Markovich said. They assume they're getting certain protections since they're already paying other bank fees.
Zelle users are covered if they're victims of fraud. Banks have a good-faith obligation to help the consumers get their money back, but sometimes it's out of their control, Alexander said. For example, people who receive money sent in error might not agree to have it taken out of their accounts.
O'Neil still contacts JPMorgan Chase every few months in hopes of finding an associate that can help him get his $360 back from the East Coast home inspection company. His attempts to get his money back from the company directly also have been unsuccessful.
"Everyone seems a bit dumbfounded," he said. "If people are making large purchases... and there's this kind of room for error, you would think more mechanisms are in place to protect consumers in this day and age."